Host Hotels & Resorts, Inc.

Thank you and good morning, everyone. Before we begin, please note that many of the comments made today are considered to be forward-looking statements under federal securities law. As described in our filings with the SEC, these statements are subject to numerous risks and uncertainties that could cause future results to differ from those expressed, and we are not obligated to publicly update or revise these forward-looking statements. In addition, on today's call, we will discuss certain non-GAAP financial information such as FFO, adjusted EBITDA RE, and comparable hotel level results. You can find this information together with reconciliations to the most directly comparable GAAP information in yesterday's earnings press release and our 8K filed with the SEC and the supplemental financial information on our website, at hosthotels.com. With me on today's call are Jim Rizzolio, President and Chief Executive Officer, and Saurav Ghosh, Executive Vice President and Chief Financial Officer. With that, I would like to turn the call over to Jim.

Thank you, Jamie, and thanks to everyone for joining us this morning. Before we turn to the quarter, I want to take a moment to acknowledge the devastating wildfires that occurred on the island of Maui this past August. All of us at Host were deeply saddened by the loss of life and heartbreaking impact on local communities. As the largest hotel real estate owner on Maui for over 20 years, Host has long shared a connection to the island and helping to support the community through this difficult time is important to our company. We are proud to have aided recovery and rebuilding efforts, donating more than $250,000 to emergency response and relief organizations, as well as providing direct financial assistance and relief to our hotel's employees. We also provided food and shelter to these employees, their families, and emergency response teams. The strength and resilience of the Maui community inspires us. and we are committed to supporting them as the recovery continues. Now, let's move to our results for the quarter. Please note that the results presented on today's call represent the comparable hotel portfolio, which includes all three Maui resorts and continues to exclude the Ritz-Carlton Naples and Hyatt Regency Coconut Point. When applicable, we will provide estimated impacts from Maui to certain results to provide a more comprehensive view of business trends in the quarter. During the third quarter, we delivered a comparable hotel rep par improvement of 1.8% compared to the third quarter of 2022. Our rep par performance for the quarter was driven by an occupancy increase of 150 basis points led by our convention hotels in downtown locations. Overall, Maui had less of an impact on our results than we initially expected, as we were able to replace high-rated transient business with recovery and relief group business, which impacted our demand mix this quarter. We delivered adjusted EBITDA RE of $361 million, which includes $54 million of business interruption proceeds from Hurricane Ian and delivered adjusted FFO per share of 41 cents, feeding consensus on both metrics. Third quarter comparable hotel EBITDA margin of 26.6% exceeded 2019 by 10 basis points, and this marks the sixth consecutive quarter since the onset of the pandemic that we have achieved TREBPAR, REPPAR, comparable hotel EBITDA, and margins ahead of 2019 levels. Comparable hotel red par for October is expected to be approximately $229, a 2.4% improvement over 2022. We estimate that the Maui wildfires impacted third quarter comparable hotel red par by 60 basis points, comparable hotel tread par by 120 basis points, and comparable hotel EBITDA by $4.5 million. Our risk management team is continuing to engage with our insurers about potential business interruption coverage, and the timing and amounts of any potential proceeds are not yet known. Despite the wildfires on Maui, which we expect will impact our full-year Red Park guidance by 50 basis points, we maintain the midpoint of our previous full-year expected comparable hotel Red Park growth at 8%, and tightened our full-year Red Park growth guidance range to 7.25% to 8.75%. At the midpoint of our guidance, full-year 2023 comparable hotel EBITDA is forecasted to be 8.5% above 2019, with comparable hotel Red Park growth 5.6% greater than 2019. As we look at the current macro picture, we continue to be optimistic about the state of travel for several reasons. First, group business continues to improve. During the quarter, we booked 245,000 group rooms for 2023, and total group revenue pace is now 6.7% ahead of the same time 2019, up from 4.2% as of the second quarter. Even without the recovery and relief groups on Maui, total group revenue would have been above both 2022 and 2019. The group booking window continues to extend, and we are pleased with the base we have on the books for next year. Second, business transient demand continued its gradual improvement during the third quarter. Business transient revenue was up approximately 9% to 2022, and demand improved 5% compared to the third quarter of 2022. Overall, business transient revenue is down approximately 16% compared to 2019, with room nights down approximately 20%. Room nights have gradually improved throughout the year. In January, we were down nearly 23% to 2019, and in September, we were down just 17% to 2019. We see the continued evolution of business travel as a tailwind in the future. Third, leisure rates at our resorts remain well above 2019 levels despite continued moderation in the third quarter as expected. For context, transient rates at our resorts were 56% above 2019 in the third quarter. which is particularly impressive when considering that this excludes the benefits from our two newly renovated non-comparable hotels in Florida and includes the impact from our three resorts on Maui. Fourth, we expect international demand to be a positive trend going forward. International inbound air traffic increased to 88% of 2019 levels in September, up from 80% in June. At the same time, international outbound air traffic increased to 118% of 2019 levels after hovering near 108% since January, which indicates that consumers continue to prioritize travel. As evidenced by recent booking volume trends for U.S. airlines, the international imbalance is likely to revert to 2019 levels over time. Most importantly, we are not seeing evidence of a weakened consumer at our hotels. Food and beverage outlet revenues remain both above 2022 and 2019, driven by resorts and non-resorts alike, which is encouraging given that occupancy still lags 2019 levels. Golf and spa revenues also remain significantly ahead of pre-pandemic levels. Taken together, we believe this indicates the consumer's continued desire and ability to spend on experiences at our hotels. Moving to our reconstruction efforts following Hurricane Ian, the newly transformed Ritz-Carlton Naples has been very well received since its reopening in July, and we are optimistic that the resort is set up to exceed our underwriting expectations. Transient rates were 75% above 2019 for the second half of this year, driven by the increased suite mix and the new Vanderbilt Tower. Looking forward to festive season, club level room night booking pace is up more than 20% over the same time in 2019 with an ADR premium of almost $900 and suite bookings are pacing up 125% with a more than $1,300 rate increase over 2019. We are proud of the well-deserved attention that Ritz-Carlton Naples is receiving, including regaining the coveted AAA Five Diamond designation, and we look forward to seeing the results it delivers in the years to come. In terms of insurance proceeds related to Hurricane Ian, to date, we have received $208 million of the expected potential insurance recovery of approximately $310 million for covered costs. During the third quarter, we received $54 million of business interruption proceeds, and we expect to receive an additional $26 million of business interruption proceeds in the fourth quarter. Turning to group, revenue exceeded 2022 by 10% in the third quarter, marking the fifth consecutive quarter group revenue exceeded 2019. Definite group room nights on the books for 2023 increased to 4 million in the third quarter, which represents approximately 110% of comparable full-year 2022 actual group room nights, up from 103% as of the second quarter. For full-year 2023, total group revenue pace is up approximately 20% to the same time last year, and up 6.7% to the same time 2019, in part due to recovery and relief groups on Maui. Group rate on the books is up 7% to the same time last year, a 40 basis point increase since the second quarter. Looking ahead to 2024, we have 2.6 million definite group room nights on the books, a 15% increase since the second quarter. Total group revenue pace is up 13% to the same time last year, driven fairly evenly by room nights and rate. We are encouraged by the ongoing strength of group as evidenced by increasing pace, lengthening booking windows, and improving citywide calendars. Moving to portfolio reinvestment, we are excited to announce that we reached an agreement with Hyatt to complete transformational reinvestment capital projects at six properties in our portfolio. The properties include the Grand Hyatt Atlanta, the Grand Hyatt Washington DC, the Grand Hyatt San Diego, the Hyatt Regency Austin, the Hyatt Regency Capitol Hill, and the Hyatt Regency Reston. Building on the success of the Marriott Transformational Capital Program, we believe these portfolio investments will position the targeted hotels to compete better in their respective markets while enhancing long-term performance. Hyatt has agreed to provide us with priority returns on these investments. Additionally, Hyatt will provide $40 million in operating profit guarantees as protection for the anticipated disruption associated with the incremental investment. Our total investment is expected to be approximately $550 to $600 million, two-thirds of which we were planning to invest as part of our capital plan over the next few years. We expect to invest between $125 and $200 million per year over the next three to four years on this program. We are targeting stabilized annual cash-on-cash returns and the low double digits on our incremental investment through a combination of enhanced owner's priority returns and rep part index share gains. Turning to our capital expenditure guidance for 2023, we tightened the range to $615 to $695 million, which includes approximately $200 to $230 million of investment for redevelopment, repositioning, and ROI projects, and $150 to $175 million for hurricane restoration work. Major capital expenditure projects included the December completion of a transformational renovation at the Fairmont Key Line, as well as the start of construction at the Phoenician Canyon Suites Villas and a luxury condominium development at Four Seasons Resort Orlando at Walt Disney World Resort. Lastly, we are well underway with the repositioning renovation of the Hilton Singer Island. which is expected to be complete in the first quarter of 2024. And we are working with Hilton to soft brand the hotel as a curio collection resort. We are targeting a stabilized cash on cash return in the mid-teens on our repositioning investment. As we have said many times before, our exceptional balance sheet puts us in a position to execute on multiple fronts, which is what you saw us do during the third quarter. We continue to reinvest in our portfolio, and we believe our comprehensive renovations will enhance the even growth of our portfolio well into the future. We announced an exciting transformational capital program with Hyatt. We purchased approximately $100 million of stock and returned capital to shareholders through a 20% increase in our quarterly dividend. We continue to be optimistic about the state of travel. and we believe Host is very well positioned to outperform in the current economic environment. With that, I will turn the call over to Saurabh.

Thank you, Jim, and good morning, everyone. Building on Jim's comments, I will go into detail on our third quarter operations, our updated 2023 guidance, our balance sheet, and our dividend. Starting with business mix, we estimate that Maui impacted overall transient revenue by 450 basis points would skew the comparison this quarter, resulting in transient revenue down 330 basis points to the third quarter of 2022. We were encouraged that transient rates at resorts remained 56% higher than 2019, despite the impact from Maui and the renovation at the One Hotel South Beach, which contributed to the decline over last year. As expected, during the third quarter, we continued to see a normalization in transient rates at resource compared to 2022. Business transient revenue was approximately 9% above the third quarter of 2022. Business transient rooms sold remain approximately 20% below 2019 levels, but it's worth noting that New York, San Francisco, and Denver, three of our largest business transient markets, were within 10% of 2019 room nights in the third quarter. Looking at top business transient customers, large consulting and audit firms continue to drive the biggest share of business travel room nights, but they're also the largest contributor to room night decline compared to 2019. Encouragingly, during the third quarter, large technology companies showed room-night growth compared to 2019. Turning to group, group room revenues were 10% above the third quarter of 2022, driven by a rate increase of 8%. It is worth noting that these results were skewed higher by the recovery and relief groups at our Maui resorts, which positively impacted group room revenue. In the quarter for the quarter, group room night bookings were up 49% compared to last year and 85% compared to 2019, with growth driven by New York, Phoenix, and San Francisco, as our convention hotels continue to focus on building a strong in-house group base. Maui also contributed to the strong in the quarter for the quarter bookings, but results would still have been up meaningfully, excluding its contribution. We are encouraged by the continued recovery of international arrivals to San Francisco, which stood at 87% of 2019 levels in the third quarter, up from 76% in the fourth quarter, driven by increased airlift from Asia. With respect to group mix, corporate group room revenue was up 8% in the third quarter, driven by 7% rate growth. Association group revenue was down 11% in the third quarter compared to last year, led by a decline in room nights as the citywide recovery remains uneven. Social, military, educational, religious, and fraternal, or SMURF group revenue was up 39% in the third quarter, driven by recovery and relief room nights on Maui, which are designated in the SMURF category. Excluding Maui, room night growth in this category would still have been up over 7% led by our hotels in New York and Washington, D.C. Looking ahead, our 2024 total group revenue pace is 13% ahead of the same time last year, and we continue to be encouraged by the citywide booking pace in markets such as Seattle, New Orleans, and San Diego, all of which have citywide group boom nights meaningfully ahead of the same time last year. Shifting gears to margin performance, Our third quarter comparable hotel EBITDA margin came in at 26.6%, which is 10 basis points above the third quarter of 2019. Total comparable expenses grew 5.5% over 2019, while total comparable revenues were up 5.6%. As we have said many times before, we are encouraged that comparable hotel EBITDA margin remains above 2019 despite elevated expense inflation over the past four years and occupancy still eight points below 2019. As Jim mentioned, despite the impact of the wildfires in Maui, we maintained the midpoint of our previous full-year expected comparable hotel REFPA growth at 8% and tightened our full-year REFPA growth guidance range to 7.25% to 8.75%. Our guidance range continues to contemplate varying degrees of moderating growth in the fourth quarter. We would expect year-over-year comparable hotel ref park percentage changes in the fourth quarter to be down low single digits at the bottom end to up low single digits at the top end, with the range driven primarily by the evolving nature of demand of Maui. We expect fourth quarter operational results to roughly follow 2019 quarterly seasonal trends as provided on page 17 of our supplemental financial information, which at the midpoint of our guidance implies slightly positive fourth quarter REFPA growth. At the midpoint, we would expect full-year adjusted EBITDA RE of $1,620,000,000. Please note that our adjusted EBITDA RE guidance includes $54 million of business interruption proceeds, which we received in the third quarter, and an additional $26 million, which we expect to collect in the fourth quarter, all of which is related to Hurricane Ian. Excluding the impacts of business interruption, our revised full-year comparable hotel EBITDA midpoint only declined $8 million versus the second quarter, despite a full-year estimated impact of $25 million from now. It is important to remember that although business interruption proceeds are one time in nature, we expect the Witz Carlton Naples and Hyatt Regency Coconut Point to contribute a full year of EBITDA in 2024. As a reminder, comparable hotel EBITDA and comparable hotel EBITDA margin are not affected by operational results or business interruption proceeds related to these two resorts, as they are considered non-comparable at this time. Shifting to margins, as we have discussed over the past few quarters, year over year, we expect comparable hotel EBITDA margins to be down 210 basis points at the low end of our guidance to down 170 basis points at the high end due to stable staffing levels at our hotels, higher utility and insurance expenses, and lower attrition and cancellation fees. For these reasons, we do not believe 2022 represents a stabilized comparison for margins. Relative to 2019, which we believe is a more representative year for margin comparison, we expect margins this year to be up 20 basis points at the low end of our guidance to up 60 basis points at the high end. This margin expansion is, despite impacts from Maui, occupancy still meaningfully below 2019 levels, moderating attrition and cancellation revenues, and expense inflation. Turning to our balance sheet and liquidity position, the $163 million loan to the buyer of the Sheraton Boston was repaid in full during the third quarter. Our weighted average maturity is 4.5 years at a weighted average interest rate of 4.6%. We have a balanced maturity schedule with our next maturity of $400 million coming due in April 2024. We ended the third quarter at 2.1 times leverage, and we have $2.6 billion of total available liquidity, which includes $218 million of FF&E reserves and full availability of our $1.5 billion credit facility. In addition, we repurchased 6.3 million shares at an average price of $15.90 per share, bringing our total repurchases for the quarter to $100 million. Year-to-date, we have repurchased 9.5 million shares at an average price of $15.82, bringing our total repurchases for the year to $150 million. We have approximately $823 million of remaining capacity under our repurchase program, and we will continue to be opportunistic when executing share repurchases. We paid a quarterly cash dividend of 18 cents per share, an increase of 3 cents, or 20% over our second quarter dividend. Though we expect to maintain our quarterly dividend at a sustainable level, taking into consideration potential macroeconomic factors, all future dividends are subject to approval by the company's board of directors. We remain optimistic on the future of our business and travel overall. We believe our portfolio, our balance sheet, and our team are well positioned to continue outperforming. As we have shown, hosts can do it all, and we will continue to be strategic in the current macroeconomic environment. With that, we would be happy to take your questions. To ensure we have time to address as many questions as possible, please limit yourself to one question.